Let Startups Start Out Tax-Free

June 11 (Bloomberg) -- Small businesses represent 99.7
percent of all private-sector employers, provide great
innovation and are the most potent force to revive America’s
economy, which cannot grow at a healthy pace without them.

Yet small businesses continue to face unnecessary obstacles
to their success. Despite the adoption of new laws and
regulations aimed at helping small firms, many still confront
crushing regulatory burdens and struggle to get costly, time-consuming permits necessary to do business. They face
overwhelming challenges trying to compete against more loosely
regulated companies in other countries. As one of the largest
insurers of small businesses, we see it every day, both
anecdotally and in the data.

New small businesses, and the U.S. economy, would benefit
significantly from a three-year incubation period during which
they would face lower taxes, fewer regulatory requirements and
fewer penalties for first-time and harmless paperwork
violations.

An obvious way to promote small business would be to reduce
or entirely eliminate their taxes during the first three years
of operation. While there are no reliable statistics showing how
much in federal and state taxes new businesses pay, it is clear
that taxes can be a burden on these enterprises. The average,
profitable small business pays an effective tax rate of about 20
percent, according to a study commissioned by the U.S. Small
Business Administration. Although many startups aren’t
profitable in their initial years, those that are would be able
to plow back earnings into their companies and, in turn, hire
more workers.

Temporary Relief

By granting temporary relief from the cost of regulations
not related to public health and safety, these businesses could
focus on survival during their greatest period of vulnerability.

From all over the country, I hear about counterproductive
requirements. A freight transport company, for example, employs
drivers who must have four different licenses to travel a mere
four miles between New York City and Port Newark, New Jersey.
More and more state and local governments require costly and
time-consuming “occupational licenses” that do little to
advance the particular profession. According to a recent study,
only one in 20 U.S. workers needed the government’s permission
to pursue a chosen occupation in the 1950s. Today, it is about
one in three.

The study, by the Institute for Justice, a law firm that
promotes less government regulation, examined 102 occupations
that require licenses, including interior designer, travel
guide, funeral attendant and florist. The study found little
correlation between the difficulty of entering the occupation
and the public health or safety risk it posed. For example, 66
occupations have greater average licensing burdens than
emergency medical technicians. The average cosmetologist spends
372 days in training, while the average emergency medical
technician spends only 33.

Of course, it would be a bad idea to eliminate licenses for
occupations that have a clear health or safety component. And
any other regulatory waivers should not apply to those
circumstances or to clear threats posed to the environment.

While many agencies have already reduced fines and
penalties for first-time, harmless paperwork violations, they
should go further and eliminate them entirely for three years.
Policy makers should focus on educating small businesses and
helping them satisfy their compliance goals, rather than
penalizing them for inadvertent and technical violations.

One-Stop Shops

There is good reason to think this would make a difference.
Just look at some of the states with the highest rankings for
policy friendliness toward entrepreneurs, including South
Dakota, Texas, Wyoming and North Dakota. They have lower taxes
and lower levels of regulation than most other states. Their
unemployment rates are also lower than the national average.

Cities and states should also create one-stop shops that
consolidate regulations and reduce the time it takes to open a
small enterprise. In New York, Mayor Michael Bloomberg, in
partnership with the city council, has created a one-stop office
to help small restaurants obtain permits and satisfy other
requirements. It has helped open 546 restaurants, saving them an
average of 72 days by cutting through the city bureaucracy. The
effort has assisted in the creation of more than 6,000 jobs in
the food-services industry.

Easing burdens on small business would have broad, positive
consequences for the economy. In recent months, even though the
recovery has been sluggish, employment gains by those companies
are far outpacing increases by large enterprises and account for
the lion’s share of new jobs. In the past year, small businesses
created 84 percent of the 1.3 million new private nonfarm jobs.

For me, the health of small business is personal. After
World War II, my father completed military service and started a
small printing business. While it remained small, it had an
outsized impact on our family. It enabled me to become the first
generation of my family to go to college and provided the
opportunity that launched my career, an experience that no doubt
is familiar to many of my generation and succeeding ones.

The nation’s future depends on small business. As a matter
of sound economic policy, and to preserve and promote American
opportunity, we should do more to nurture them.

(Jay S. Fishman is chairman and chief executive officer of
Travelers Cos. The opinions expressed are his own.)

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